Democratizing transactions and content generation in the digital age
Dawn of the DApps?
In this day and age we all carry a smartphone with us that has some half-a-dozen or more applications with which you have an account. These applications have access to some of the data in your phone — say your contacts or photos — but also generate data based on your usage of them. This data could include login times, what search terms used and when, geolocation and more. The collected data can then be used to target advertisements and predict your behaviour.
In ideal conditions, your relationship with your apps is mutually beneficial in the sense that you give up some of your privacy in return for a service. This could be something such as bus arrival times, cheap flight deals, stock market quotes or data storage, to name just a few. In a very concrete way, however, apps behave as self-interested agents that want you to maximize your usage of them whether that benefits you or not. When an app learns your behaviour, it adjusts its results and content in a way that increases your dependency upon it by activating your immediate reward mechanisms. A good illustration of this is Youtube, which inputs your search and watch history to offer you content that matches your tastes. You may have found yourself, despite knowing better, locked in a video binge that is hard to break free of.
This is one cost of free applications, without delving into privacy concerns. The reason apps are in tension with their users is that they are corporations, or by-products of corporations. Corporations are centralized entities with their own programmers, marketing teams and data centres that host your data. But what if that were not the case? What if apps were hosted in a peer-to-peer network without a middle person you had to hand your data to in return for a service? Your content could not be arbitrarily censored or taken down, your account deleted and, above all, your data sold to third-party buyers or handed over to the government if asked.
DApps offer a way to circumvent reliance on third-party platforms. The term stands for “decentralized applications”. Decentralized applications use distributed ledger contract, storage, and reward systems to empower users and remove third-party entities from determining the terms of transaction and usage between users and content-creators. But what exactly does that mean?
Consider for a moment your role when using a third-party application like YouTube, Airbnb or Uber. In each case, you are either the producer or the consumer: “the seller” or “the buyer”. When you view videos on YouTube, the ecosystem has evolved so that your attention and viewership generates money for both YouTube and the person who created the video. Similarly, when you order an Uber ride, part of your payment goes to the driver, and the rest to Uber. With Airbnb, that cost is divided between lessor and lessee, where the lessor pays a 3% service fee while the lessee pays a variable 6–12% non-refundable fee.
In general, third-party entities, like banks and the apps described, play an important role in mediating transactions between two parties. They ensure the integrity of the transaction by verifying the identity of each party, and that the transfer is carried out securely. But that’s only because, until recently, this was the best method to transact with strangers without having to worry if they are trustworthy or not.
Imagine meeting someone at the doctor’s office who tells you they’ll sublet you their cottage for a summer weekend in exchange for the payment 3 months in advance. You wouldn’t agree to that on their word even if it was a good deal. But through Airbnb, there are controls in place like transaction records, penalties and fees that decrease the chance of fraudulent activity. Except that now with a smart contract, in theory, you could do that without Airbnb. This is why DApps are sometimes called trustless, because they eliminate the need to guarantee trust.
A Few Technical Words
Technically speaking, how is a DApp different from a normal app?
Normal apps may be stored in a distributed computing architecture, but the servers on which the data is stored belong to the company; in other words the handful of people who own it. DApps, by contrast, are stored in a distributed network of individuals who can harness enough computing power to qualify as a full node. Those that qualify as a full node store an entire copy of the ledger or blockchain on their personal servers, which makes ownership collective. Further, to qualify as a network node, you or I need to execute what is called a “consensus algorithm”. The consensus algorithm forms the set of rules needed to be met in order to verify a new record or transaction. In other words, the smart contract or digital agreement we’ve alluded to earlier.
Does this create barriers to participation? That depends on the specifications of the contract. There are a variety of consensus mechanisms out there with different advantages and disadvantages. One popular consensus mechanism called proof of stake favours participants who already have a higher stake in the ledger through ownership of tokens or currency. Another, called proof of work relies on computing power, which increases proportionate to the number of users asking for a transaction. On the whole, there are grades of participation, which in a nutshell separate into fully trustless participation, i.e. storing and verifying the entire ledger (full node), and light participation, which means verifying only parts of the ledger or completely outsourcing verification to a full node. Light participation is an optimal, low-stake way for beginners to become exposed to the benefits of DApps.
Becoming a DApp-er
This is all great in the abstract, but where are these DApps you speak of? As a matter of fact, there’s a website called State of the DApps that tracks the viability, popularity, and user base of emerging decentralized applications. Popular DApps include D.tube, which presents a decentralized alternative to YouTube, Steemit, which functions like a social media alternative to Reddit, but where users are rewarded for posting and engaging with posts, Cosmochain, which serves as a marketplace directly connecting consumers to suppliers in the beauty industry through the use of tokens, and Antube, which is a mobile video sharing app where censorship and distribution are determined by community consensus.
To understand better the reward economy that DApps are trying to usher in, let’s take Steemit as an example. Academics that analyze social media culture have been bemoaning for the last decade the fact that web 2.0 — basically the internet dominated by Facebook, YouTube, Twitter and Instagram — unfairly benefits from the labour of millions of users, most of whom do not get a cent out of that economy. Steemit is built to reverse this pattern through an incentive system that distributes its rewards between curators and creators. A creator is someone who generates a post, such as a photo or a blog post, and a curator is someone who reacts to it through votes. Each day, Steemit allocates a fixed pool of steem tokens, up to 50% of which can get awarded to curators who vote, and the rest to creators.
Steemit logo. Used on a Creative Commons license.
Steem tokens can, in turn, be converted into Steem Power, which increases the voting weight of particular users, and Steem dollars, which can be traded for other currency. By default, 1 Steem dollar or SBD = 1 $USD. If your post garners a lot of votes, and those votes come from users with high steem power, that will directly influence your net payout, which will be made to your digital wallet by default after seven days of posting, divided equally between steem power and steam dollars.
Whew, that is a wee bit complicated. But, if you’re an avid social media user this platform can empower you as a content generator or curator by awarding greater control of your digital assets and rewarding your activity.
The DApp movement is only at its inception, and as we speak people around the world are scrambling to build viable models across industries. Among the areas you can find DApps, include insurance, finance, games, media and security. But whether DApps will break into the mainstream and become a part of your daily life is difficult to tell. That, in part, depends on how much responsibility users are willing to take on. It also depends on how well DApps learn to adapt to user tastes and capabilities, as well as manage security and resources.
It is easy to imagine Utopian possibilities, but the real world is always messy and complicated. Take for example The DAO (Decentralized Autonomous Organization), a decentralized company launched in 2016 within the Ethereum blockchain conceived as a decentralized platform for commercial and non-profit purposes. The DAO garnered the largest crowdfunding in history, but within months of its launch it went defunct. Why? Because a vulnerability in its code led to it being hacked, and one third of its donated money was funneled into a subsidiary account. This led the DAO to be delisted from major exchanges, and the Ethereum ledger to split into two separate blockchains: Ethereum Classic and the current, updated, Ethereum.
Ethereum logo. Used on a Creative Commons License.
On the other hand, it is easy to dismiss new ideas. After all, who could’ve predicted that Twitter, Facebook and Google would be as big a part of our lives as they are. Whether DApps will displace traditional social media or create their own niche within a diversifying market, like ebooks alongside physical books, is difficult to tell. Because the world we live in is constantly redefining itself, they may well succeed in transforming aspects of the traditional economy just as the internet, e-commerce and automation have already done.